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U.S. regulator to sue major banks over mortgages

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Reuters

The agency that oversees U.S. mortgage markets is preparing to file suit against more than a dozen big banks, accusing them of misrepresenting the quality of mortgages they packaged and sold during the housing bubble, according to a published report.

The Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mac, is expected to file suit against Bank of America Corp., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Deutsche Bank, among other banks, according to the New York Times, citing three unidentified individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks last year. They would be filed Friday or Tuesday, the report said.

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The government will argue the banks, which pooled mortgages and sold them as securities to investors, failed to perform due diligence required under securities law and missed evidence that borrowers’ incomes were falsified or inflated, the Times reported.

Fannie Mae and Freddie Mac lost more than $30 billion, partly because of their mortgage-backed securities purchases, when the housing bubble burst in 2008. The losses were covered mostly with taxpayers’ money.

News of the suits could have a negative effect on stocks of the banks in question. JPMorgan Chase, Bank of America and Goldman Sachs are traded on the New York Stock Exchange, while Deutsche Bank is traded on the German exchange.

A spokesman for the Federal Housing Finance Agency was not immediately available for comment Thursday evening.

Bank of America, JPMorgan and Goldman Sachs all declined to comment, the report said. A Deutsche Bank spokesman told the Times, “We can’t comment on a suit that we haven’t seen and hasn’t been filed yet.”

The practice of subprime lending, in which mortgage brokers lowered their standards to entice home buyers to take out large mortgages to buy more expensive homes than they could afford, was a root cause of the mortgage market implosion.

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The Federal Housing Finance Agency filed suit against Swiss bank giant UBS in July, seeking to recover at least $900 million for taxpayers.

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